As you may know, I was recently banned from the Cake Central forums, where I have been an active participant for several years. A lot of people have sent me inquiries asking why this happened. I’m still not clear on the specific reasons, but I will do my best to outline the facts of what happened here.

Jan 16, 2014: An active thread is ongoing involving people complaining about CakeCentral Magazine (the usual complaints about lack of communication and slow refunds). A moderator (SystemMod1) locks the thread after posting that criticism of CakeCentral on the forums will not be tolerated.

Jan 17, 2014: A member posts in another thread complaining about CakeCentral Magazine. I replied by posting a direct link to contact the magazine, and added that the user should be careful because posts critical of CakeCentral are not allowed (previous posts in the thread were full of criticism). Another user replied expressing disbelief at this policy, so I linked to SystemMod1’s post.

Shortly after this post, the thread was deleted anyway and a moderator (SystemMod1) sent me the following private message: “You purposefully attempted to scare off a new member by twisting a completely unrelated matter. Completely unacceptable and shameful even for you.”

After receiving this message, I was unable to access PMs or reply to threads on CakeCentral, and I realized I was banned. I was still able to check my profile, and I had received an “infraction” for being “Argumentative/Hostile/Rude”. The “infraction” expired after 10 days.

Since I was unable to reply to my private messages, I sent the moderator an email directly at her business email address to figure out why I was banned and how I could avoid it in the future. Her email address was published on her web site, and I knew the identity of the moderator because she publicly announced she was a moderator when she got the job; CC has since made separate moderator accounts.

The moderator replied but did not give me any specific information as to why I was banned. In fact, she said that my email to her was “even more inappropriate then what you did to get the temporary ban”. I’ve contacted CC members directly before, I didn’t think it was that much of an issue.

Jan 24, 2014: I received a message from Heath (a co-founder of CakeCentral), saying that because I contacted the moderator at her personal email address (it was her business email address), because I revealed the identity of SystemMod1 (I had not done so on CC and will not do so here), and due to the “history of reported posts on my account” (I have no idea what this refers to) I have been permanently banned. Again, no specifics were given.

Jan 26, 2014: I was informed that this same moderator publicly blamed me for a malware attack on CakeCentral. When I found out about this, I contacted another CC member to relay the message that I was not responsible for this attack, and I have too much respect for the CC community to target innocent users. I was told that the moderator immediately deleted my relayed message and locked the thread. EDIT: I’ve been informed that the moderator backed away from her statement and indicated that I was in fact not involved before the thread was locked.

I can’t really make much sense out of what happened…but it happened and I am moving on. It’s been a lot of fun participating in the CakeCentral forums for the past few years, and I learned quite a bit. It is a testament to the strength of the CC community that it continues to flourish despite the inconsistent policies and actions of the administration. Best of luck to everyone in the community, and thanks to everyone who sent me messages of support.

One final note: when I was banned they also removed the links to my blog in my signature. If you are replying to questions about pricing, starting a new business, or copyright law feel free to include a link to this blog (https://jasonkraftblog.wordpress.com/). And if you have a question, you can either leave a comment on my blog, or contact me by email (jason.kraft@gmail.com) or on Facebook (https://www.facebook.com/jason.l.kraft).

In a previous article I discussed a pricing formula that involves calculating your costs and adding a markup for profit based on market value. Today I will expand on what market value is, how to avoid damaging your local market by underpricing, and what to do if economic damage has already been done.

In economics, the market value of a product or service is the amount a willing and independent buyer and seller would exchange after proper marketing when each party acts knowledgeably and prudently. The key elements of this definition are proper marketing and knowledge on the part of the buyer. Unfortunately, this industry has a number of factors that are working against sellers by applying downard pressure on the perceived value of cake decorating services in the minds of customers.

Most customers don’t purchase custom cakes that often. More often than not, a customer’s only frame of reference for how much a cake should cost will come from the grocery store, so when it is time to shop for a more premium cake that grocery store price will be a psychological anchor dragging down the expectation of value.

The explosion of TV shows dedicated to cake decorating doesn’t help. A show that realistically portrayed the process involved in creating a decorated masterpiece would not be very exciting, so they edit the shows to compress what may be a 22 hour process into 22 minutes. The price of the resulting cake is usually not shown, so viewers without industry knowledge will dramatically underestimate the labor required.

These two issues alone wouldn’t be so bad if sellers were diligent about setting firm prices based on their costs, paying themselves a reasonable wage, consistently marketing their products, and educating customers about how long their designs will cake. In reality, this business has such a low barrier of entry, some sellers may not take the time for due diligence and as a result set prices far below what they should be. This only reinforces the low value of custom baked goods in the eyes of customers.

The reasons for this may vary — it could be a lack of confidence, there could be an outside source of income (such as a spouse’s salary) masking the true performance of the business, or the seller may not have the business knowledge to know there is even a problem. Cottage food laws have not helped the situation since they lower barriers to entry even further. If these laws required even just an hour or two of basic business training on how to market and set prices alongside the required food safety training things might be different.

So, as a seller, what can you do? To fight the aforementioned headwinds you have to be aggressive about demonstrating the value you can add over cheaper alternatives. Highlight your competitive advantage, whether that advantage lies in high quality ingredients, decorating skills, or appealing to a niche, but try to avoid going negative about the competition.

You will also want to make sure the customer knows the level of complexity involved in the designs they choose. You don’t need to be exact, but if they want a design that will take 60 hours to execute but can only pay $3/serving, you’ll need to redirect the conversation to increasing their budget and/or selecting a simpler design.

If you get pushback from customers who want to pay a lower price without compromising, reiterate your price in a polite yet firm manner. Continuing pushback should result in you giving the customer a choice between their desired order at the original price or a simpler order at a lower price. Failure to select either of these options means that they are no longer your customer, and you can wish them the best of luck with their event.

Also think twice before offering coupons or discounts, or signing up with a service like Groupon. If you have a quality product, you should not be competing on price, and discounts tend to attract exactly the type of customer you want to avoid. A similar problem occurs if you set your prices too low to start with because you’re new; when you finally increase your prices to reasonable levels, you will probably lose most of your customers and have to start from scratch, while at the same time trying to erase your reputation as the “cheap” bakery.

It is possible that your local market has already been poisoned by severe undercutting, to the point where pricing at market value for your products will lead to paying yourself below minimum wage with zero profit. This is a tough situation, since you can’t really bring this up directly with your competition. If the undercutting businesses are operating illegally based on local food safety laws, one solution is to contact your health or agriculture dept with the names of the alleged illegal businesses.

If the offending businesses are operating legally, you may be able to work through a third party (such as the SBA or the local Chamber of Commerce) to set up some free business training, which could be offered by the third parties to all the bakeries in the area. Another alternative is to shift your target market to a niche that is not being served in your area, pursue a different channel (e.g. wholesale), or pursue exclusive arrangements with popular venues.

The crux of this issue is that every business that offers products to the general public is responsible for the economic health of the industry they participate in. This includes hobbyists who advertise and sell their works, even if they don’t think they really have a business. If you don’t want to go through the effort of charging what your products are worth, you are better off not selling to the public at all and sticking to providing products for friends and family.

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Let’s expand a little on the allocated overhead component of the pricing formula with an example. There are two pieces of information you need to calculate allocated overhead: how many orders you fill each year, and how much you spend in overhead annually.

Let’s say you are getting ready to launch a new home-based bakery business, so since you have no actual sales history to determine annual volume you estimate that you will be selling two wedding cakes per week on average. Your estimated annual volume would be 100 orders, leaving two weeks a year for vacation.

Looking at the overhead spending for your first year (which you should already have budgeted), you might have $400 for insurance, $100 for the city business license, $200 for a cottage food license, $400 for accounting and legal fees, $1800 for advertising ($150/month, including web site costs), $600 in additional utility costs ($50/month), and $600 in supplies & depreciation, which includes the cost of replacing worn out supplies and buying new general use supplies throughout the year. That’s a total of $4000/year.

Divide your annual overhead total of $4000 by the number of orders per year (100) and you come up with an allocated overhead cost of $40 per order. So if the ingredients for a wedding cake cost $60, you will be spending ten hours total on the order, and you pay yourself $15/hour, the total for ingredients and labor would be $60 + (10 * $15) = $210. Then you would add allocated overhead of $40 (which would typically be the same for every order) to bring the true cost up to $250. Adding a 20% markup for profit gives you a final price of $300.

If you have a different business model and focus on a higher volume of smaller orders, you would be able to spread out the overhead cost across more sales throughout the year. Assuming a volume of 10 orders per week, or 500 per year, the $4000 in annual overhead would work out to just $8 per order.

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If you are reading this post, you may have heard this at some point from a well-meaning friend or family member. From the outside, starting a business seems like a quick and easy process…just set up a web site, throw together a price list, and you’re done, right? The reality of launching a business is far more involved, and most of the work happens behind the scenes. This subject could fill an entire book, but in this post I will attempt to hit the highlights, drilling down into more detail in future articles.

A brief overview of twelve steps to building a business from the ground up:

1. Business Plan — Create a business plan to help figure out what to sell, where to sell it, how much to sell it for, and who to sell it to. This will include research to determine if your business will be feasible in your area based on market saturation, competition, and local demographics.

2. Competitive Advantage — This is normally part of a business plan, but it is so important I think it deserves to be called out separately. What can you provide that your competition can’t or won’t match? Why should customers buy your products from you instead of somewhere else? How sustainable is your advantage?

3. Legal Compliance — A food service business will usually have special requirements from the health or agriculture departments of your city, county, and/or state which may or may not require commercial kitchens and inspections. You need to know what these requirements are before you start selling. Other legal issues to look at include business licensing (typically from your city), collecting sales tax, filing for a business name, and choosing a business structure.

4. Insurance — It may not be a legal requirement, but anyone selling food should carry business liability insurance to protect themselves. You may also need additional insurance on your vehicle if you make deliveries, and worker’s comp coverage if you have employees. Contracts should be written up and reviewed by someone familiar with local and state laws.

5. Financing — Whether you are investing $250K on a storefront or running a home bakery under your state’s cottage food law, you need to figure out where your cash flow will be coming from while you are in the startup phase, since your business may take a while to make a profit. If there is no other income coming in, don’t forget to account for your living expenses as well.

6. Accounting — Speaking of money, you will save yourself a lot of hassle if you work out how you will handle your accounting up front. Whether you will handle the books yourself with QuickBooks, hire an accountant, or just use pencil and paper, you need to keep a record of all your expenses as you continue through the startup process, and have invoices ready to go on your launch date.

7. Marketing — Implementing your marketing strategy will involve building a web site with SEO and social media presence, creating a name and brand that ties in well with your packaging and other customer touch points, and promoting your business to your target market. Having a system to manage your customer relationships (called customer relationship management systems, surprisingly enough) will help you build on your efforts as time goes on.

8. Procurement — Where will you be buying your supplies and ingredients? How much will they cost? Where will you store them? How often will you need to replenish your supplies? How will you track inventory? How often will you reexamine your current vendors to ensure you are still getting the best price possible?

9. Operations Management — Time is money. More specifically, time is a cost, and since your market will typically determine price you will be more profitable if you are more efficient. If you can break down the different tasks involved in completing an order and have a good understanding of how long each task will take, you will be able to set more accurate prices and identify where you can improve your processes. You also need to identify and fill slack time (for example, while cakes are baking or cooling) whenever possible.

10. Recipe Optimization/R&D — Look at all the different recipes involved in making the products you have for sale. Can you adjust recipes to use less expensive ingredients or reduce the labor required without impacting quality? Are there ways to create additional variety through relatively simple steps (for example, using a frosting base and adding extracts for flavor as needed)? Are you offering too many recipe options? Can products or components be made in bulk ahead of time and frozen or kept refrigerated?

11. Prepare for Launch — Put the finishing touches on your web site and social media presence, and coordinate advertising campaigns to hit your target market as soon as you are ready to “flip the switch” and start accepting orders.

12. Open for Business! — The first few weeks after you start your business are critical, since online reviews can tend to have a snowball effect that can be a great help or a great hindrance. Don’t be discouraged if things start slowly, stick with it and be sure to continually monitor referral links to your web site and the visibility of your advertising.

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Another common issue that is often ignored is how copyright law affects cake decorating. Copyrighted characters created by Disney, Nintendo, and Nickelodeon are often requested as decorations for kids’ birthday cakes, and trademarks from designer purse manufacturers and sports teams are a common sight on cakes for weddings and other events.

Under current copyright law in the US, in most cases you must obtain permission from the copyright or trademark owner if you want to duplicate a protected work, such as an original character or logo. There are a few exceptions to this rule (including use as a parody, educational use, or copying a small portion of a work as part of a review), but these exceptions typically won’t apply to cake decorating.

If you are copying a copyrighted character in fondant, gumpaste, buttercream, etc. on a cake for personal use, your risk is minimal as long as you do not display the cake publicly — this means no pictures posted on social media sites. On the other hand, selling a cake with copyrighted characters without permission can be dangerous even if you don’t post pictures yourself — if you did a good job, chances are the customer and other guests at the event will post their own pictures.

There are a couple ways you can protect yourself against infringing on copyrights:

Get permission first.

Some copyright owners will let you copy their characters for free, some will require a license fee, and some won’t allow any copying. If you’re not sure who the copyright owner is, a Google search of the character’s name will usually lead to a web site with a copyright notice at the bottom and contact information for the company. Make sure to get permission in writing.

Since some of the most popular characters are owned by companies that usually won’t grant a license (e.g. Disney), your customers may be disappointed. I find that it’s helpful to require the customer to provide written permission before placing the order, that way if the copyright owner denies the request, the customer’s wrath is directed at the copyright owner instead of you. As it should be.

Use Licensed Figurines

There is a component of copyright law called the “First Sale Doctrine”, which allows you to purchase a licensed copy of a copyrighted work (e.g. a Mickey Mouse figurine) and resell that copy without obtaining permission. This is not considered infringement because the copyright owner has already been paid by the licensee. You should make sure the item you buy is legit and not an unlicensed knockoff.

There are some companies (like DecoPac) that sell complete scenes composed of several licensed copyrighted elements. When you purchase these products the license may require the scene to be used as pictured only. It’s unclear as to whether or not this is enforceable, but unless you want to be a test case I would recommend abiding by the license.

Go Generic or Public Domain

Copyright only legally protects original work, and it only protects that work for a certain amount of time. It does not protect generic concepts at all, so (as an example) you would be able to make a cake in the shape of a purse as long as it doesn’t look like a Coach purse or have a Coach logo.

There are also some works that are in the public domain, either because the author has given up copyright protection or copyright has expired. For example, Lewis Carroll’s original Alice in Wonderland books are in the public domain, so you are free to create your own spin on any of the characters in the book without permission. However, since Disney’s characters inspired by Carroll’s books are protected, you would need permission before reproducing any of them.

The line between generic and copyrighted can sometimes be a little blurry. My rule of thumb is if an average person would look at a cake and think “hey, that’s (copyrighted character)”, you need permission. (Making Mickey Mouse blue won’t cut it.) And since your goal as a cake decorator is to have exactly that reaction, you can see why this can be a difficult situation.

One final note: you may notice many, many examples of infringing cakes posted online by both individuals and businesses. This may be due to people being unaware of copyright law or simply not caring about it, but it does not mean that copyright law is not being enforced. This law exists to protect the investment of people and businesses who spend time and money creating original works of art, and if you create your own original work you would want to enjoy those same protections.

Granted that the scope and duration of copyright law has gotten a little out of control: works are currently protected for 95 years from the original publication date, and you can expect this to be extended further before 2019, which is when Mickey Mouse will fall into the public domain. But that’s a discussion for another time, and unfortunately you still have to follow laws you don’t agree with.

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To help determine the feasibility of a future book dedicated to business issues related to running a bakery (and to fund the creation of future content) I have added the ability to provide a small monetary contribution via PayPal, either $10 or $5. Contributing is entirely optional.